High Credit Borrowers Use Personal Loans to Build Wealth

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There are lots of benefits to having a good credit score – you’ll have an easier time getting that new apartment approved, and you’ll often get the best rates on car and home insurance, for example – but one of the most big advantages is that it is cheaper to borrow money when you need it.

Those with strong credit are generally offered the best interest rates and loan terms, which is part of why they end up taking on more personal debt than their low-credit counterparts.

In fact, according to a recent study by LendingTree, even though the majority of personal loans taken out by high-scoring borrowers were for debt consolidation, these borrowers tended to spend the most on personal loans to finance home renovations and renovations. business-related expenses. Those borrowing for home renovations borrowed an average of $21,510, while those borrowing for business borrowed an average of $22,778.

The study looked at data on personal loans closed between April 2021 and March 2022 and defined a high credit score as 720 and above.

Below, Select takes a closer look at why home improvements and business expenses were the largest loan amounts for borrowers with high credit scores.

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Why did top performing borrowers spend the most on loans to finance home renovations and business expenses?

One of the obvious reasons why top-rated borrowers spent the most on financing home renovations and business expenses may simply be that renovating a home or financing a business usually requires a lot of capital. , and therefore large loans.

But beyond that fact, high-scoring borrowers spent the most on these loans, as they viewed them as investments that, over time, would help them build wealth.

“Having a greater margin of financial error allows high-income, high-scoring people to use debt as an investment,” Matt Schulz, chief credit analyst at LendingTree, said in a company statement. “So they may go into debt to improve their home and increase its value or to start a small business that can help generate more income for the family.”

This is not to say that those with lower credit scores choose not to use personal loans as an investment, but rather that they may not have the capacity to take on larger debts that result in payments. larger monthly. The lower an individual’s credit score, the less access they will have to high borrowing power, as lenders view such borrowers as less likely to repay their debts as someone with a high credit score.

Personal loan options for everyone

The good news when it comes to taking out a personal loan, no matter the amount, is that anyone can get one. There are lenders who cater to borrowers with high credit scores, just as there are some who cater to borrowers with lower credit scores.

If you’re looking for the best personal loans for those with fair or good credit, consider Upstart, which allows borrowers to apply for up to $50,000 and has a minimum credit score of 600. Upstart will make exceptions in some cases and can approve applicants with no credit history. It also offers long-term loans ranging from 36 to 60 months to give you enough time to pay off your debt. Keep in mind that if you are approved with a lower credit score, you may still be subject to paying a higher interest rate.

Beginner personal loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation, credit card refinancing, marriage, moving or medical

  • Loan amounts

  • Terms

  • Credit needed

    FICO or Vantage score of 600 (but will accept applicants whose credit history is so poor that they have no credit score)

  • Assembly costs

    0% to 8% of target amount

  • Prepayment penalty

  • Late charge

    Greater of 5% of monthly amount past due or $15

High-rated borrowers looking for the best personal loans for great credit should consider LightStream, which offers low-interest loans with flexible terms for borrowers with good credit or above. Those with excellent credit can take advantage of some of the lowest interest rates, which range from 3.49% to 19.99% APR*, when they also sign up for autopay. Note, however, that LightStream does not offer loans for small businesses, in case the subject of this article inspired you. You can, however, obtain a LightStream personal loan to undertake projects such as renovating your bathroom or your kitchen.

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    3.49% to 19.99%* when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, renovation, car financing, medical expenses, marriage and more

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Other options for home improvement and small business financing

There are many ways to finance a home improvement or a small business. Beyond personal loans, alternatives include saving money in a high-yield savings account to pay cash, taking out a revolving home equity line of credit, also known as HELOC – to finance home renovations, individual – or use a credit card.

The best credit cards to help pay for your next home remodel include the Chase Freedom Unlimited® for its introductory 0% APR on new purchases – you’ll get up to 15 months of interest-free financing on new purchases to cover the cost of your project (after, 16.49% to 25.24% variable APR). That way, you’ll have over a year to fund your home repairs. In addition, you will earn money on your purchases.

Hunt Unlimited Freedom®

  • Awards

    Enjoy 5% cash back on travel purchased through Chase Ultimate Rewards®, our premier rewards program that lets you redeem rewards for cash back, travel, gift cards and more; 3% cash back on drugstore purchases and restaurant meals, including eligible takeout and delivery services, and 1.5% on all other purchases

  • welcome bonus

    Earn an extra 1.5% on everything you buy (up to $20,000 spent in the first year) – worth up to $300 in cash back. That’s 6.5% on travel purchased through Chase Ultimate Rewards®, 4.5% on restaurants and drugstores, and 3% on all other purchases.

  • Annual subscription

  • Introduction AVR

    0% for the first 15 months from account opening on purchases and balance transfers

  • Regular APR

  • Balance Transfer Fee

    Introductory fee of $5 or 3% of each transfer amount, whichever is greater, on transfers made within 60 days of account opening. After that, either $5 or 5% of each transfer amount, whichever is greater.

  • Foreign transaction fees

  • Credit needed

The best small business credit cards can help finance business expenses while offering everything from interest-free rewards and financing on new purchases to luxurious travel perks, extended warranties and insurance, among other business-related perks. business.

With the Blue Business® Plus credit card from American Express, for example, cardholders can benefit from an introductory zero-rate APR for 12 months on purchases from the account opening date (after, 14 .74% to 22.74% variable APR, see rates and fees). This special financing period can provide you with an interest-free period of up to one year. You’ll also earn 2X the Membership Rewards points on qualifying purchases up to $50,000 per year (1x thereafter).

The Blue Business® Plus credit card from American Express

On the secure site of American Express

  • Awards

    Earn 2X the Membership Rewards® points on daily business purchases up to $50,000 per year, then 1X the point per dollar

  • welcome bonus

    Earn 15,000 Membership Rewards® points after spending $3,000 on qualifying purchases on the card during your first 3 months of card membership.

  • Annual subscription

  • Introduction AVR

    0% for 12 months on purchases from the date of account opening

  • Regular APR

    14.74% – 22.74% variable

  • Balance Transfer Fee

  • Foreign transaction fees

  • Credit needed

For rates and fees for the Blue Business® Plus credit card from American Express, click here.

*The terms of your LightStream loan, including APR, may differ depending on the purpose of the loan, amount, term and your credit profile. Excellent credit is required to qualify for the lowest rates. The fare is shown with the AutoPay discount. The AutoPay rebate is only available before the loan is funded. Rates without AutoPay are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and conditions are subject to change without notice. Payment Example: Monthly payments for a $10,000 loan at 3.99% APR with a three-year term would result in 36 monthly payments of $295.20.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.

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